Worldly Wise: 13.

Economist Paul Krugman is pugnacious, contrary - and often right. He forecast East Asia's crisis and he has a controversial prescription. Huw Richards reports

Economist Paul Krugman's work-place surroundings are unpretentious and unmistakably academic. Bookshelves from floor to ceiling, a computer terminal on his desk and piles of papers on the floor. "The mess on the floor is the organised mess," he says, carefully moving one pile aside.

Krugman always wanted to be an academic. The trouble was that the subject he wanted to study did not exist. What Krugman sought to master was a discipline that would enable him to predict the future of civilisations from the behaviour of crowds.

His inspiration was his childhood reading of science-fiction writer Isaac Asimov's Foundation series, in particular Asimov's creation Hari Seldon, who, in his capacity as a "psycho-historian", foretells the prospects of civilisations. Krugman says: "As a kid I read a great deal of science fiction. After reading Asimov I wanted to be a psycho-historian, just like the character Hari Seldon."

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History, the closest Krugman could find to psycho-history, was his first choice. But he soon found economics was more to his taste: "Economics is not very like psycho-history, but it is more like it than history. I like to find explanations for things. I found that good historians are often deliberately diffident about explanation. They are more concerned with how it all actually happened than in developing stylish theories about why. And I'm a stylish theory kind of guy."

It looks as though he made the right decision. Krugman, now 45, occupies the prestigious Ford International chair in economics at the Massachusetts Institute of Technology, was the 1991 winner of the American Economic Society's John Bates Clark Medal for the best economist under 40 and, thanks to the popularity of his books and journalism, is a name to drop in business as well as academic circles. "Just about the only academic economist most of my colleagues have heard of," is the comment of one Wall Street analyst.

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Krugman's latest stylish theory cuts to the heart of today's economic crisis. Even in the early 1990s, well before the collapse of several East Asian economies, Krugman was pointing to the weakness of the Japanese economy, notably passivity on the part of the Bank of Japan. Resistance to fashion inoculated him against the belief that the future was Asian.

Now that the crash has happened, he believes that he has a solution, at least to Japan's plight. "What Japan needs is inflation. And if it starts to inflate, one of the things it has to do is convince the world that it really means it." Krugman argues that higher inflation will stimulate more consumer borrowing and spending, and that this will pull the Japanese economy out of recession. His worry is that the banking system's fixation with stable prices will stop this happening.

It is a view that has already aroused a great deal of controversy. The Economist magazine recently attacked it in an article that Krugman dismisses with the combative arrogance of the intellectually self-confident. "I make a lot of mistakes, but I do not make the obvious ones," is his comment on what he terms The Economist's "garbled response".

But if Krugman's purposes as economist and commentator are serious - "the world is going to hell in so many novel ways at the moment", he comments - a joke or one-liner to illustrate his point is never too far away. Asked if he is demonstrating panic or whimsy in a recent article on the prospects for the United States economy that concludes with Ross Perot being elected president in 2000, he responds: "A bit of both in that case. But given the choice, I'll always vote for whimsy."

He is, as readers of online magazine Slate or his recent book of essays, The Accidental Theorist, will confirm, a fluent and witty writer - something rare in his discipline. Perhaps inevitably, his ability to make economics not only approachable but appealing, his broadly liberal outlook and his base in Boston have provoked comparison with John Kenneth Galbraith. Alan Blinder of Princeton University has written: "Krugman is the heir apparent to Galbraith."

Doubtless meant as a compliment, the comparison did not delight Krugman:

"Galbraith is a stylish, witty commentator on economic issues. But if you ask economists what lasting contribution he has made to economics, they'll say 'not much'. I like to think of myself as much more of an economist's economist."

The differences between Galbraith and Krugman go deeper. Although capable of communicating without the graphs and models that provide the professional economist's intellectual framework and lingua franca, Krugman is a committed user of economic theory and modelling: "Computer models are an absolutely invaluable analytical tool. Once you have built a model, it often provides you with a means of figuring out how to talk about an issue. If I have an intuition or an idea, I'll model it and see how it works out. The most interesting bits are quite often the bits that don't add up. Offer me a choice between a piece of conventional wisdom and a clearly thought-out model that suggests a different angle on things and I'll always be inclined to go for the model."

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There is one area in which he might be regarded as Galbraithian - in the sense of representing, in his aversion to conventional wisdom, the intellectual version of Galbraith's concept of "countervailing power". He is a natural contrarian: "If an idea is fashionable, that is by itself a pretty good reason to regard it with extreme scepticism."

This makes him a pungent controversialist. If not wholly delighted by Blinder's comparison of him with Galbraith, he quotes with approval the Princeton economist's view that "economists are most influential where they know, and agree, the least". On the day of this interview he was chortling at the possibility of an invitation to China alongside Nobel prize-winner Milton Friedman to talk about Asia's problems: "If I'm asked I'll certainly go. But I'm not sure what the Chinese hope to get out of it, there's hardly any chance that we'll agree on anything."

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Krugman's first research paper was on currency crises - a natural enough subject for someone whose academic career started shortly after the unravelling of the Bretton Woods fixed exchange-rate system in the early 1970s and now, it appears, a prescient choice: "I think a lot of future economic policy will be concentrated on crises and how to deal with them. They are occurring with increasing frequency at the moment - Europe in 1992-3, Latin America in 1994-5 and now the mother of all crises in Asia. This is particularly scary for medium-sized economies that feel themselves at the mercy of market shifts."

Looking for the causes, he is characteristically unimpressed by another fashionable idea - globalisation. Here again, early work underpins his arguments, as one of the architects in the 1970s of new theories of comparative advantage in trade: "Previous theories of trade argued that trade was the consequence of (natural national) differences - so England sold wool to Portugal, which sent it wine in exchange. Our theory was that while that was a factor, there was a strong element of historical contingency - that advantages had a lot to do with countries or regions getting a head-start with some product."

He cites examples of Italy's dominance in some ceramic products because of the advantage provided by concentrations of craftsmen in individual towns, or the manner in which the US carpet industry migrated to Dalton, Georgia, because local weaving techniques suited a postwar fashion for shag-pile carpets.

He is also a technosceptic. Which is not to say that he is unappreciative of the benefits computers have conferred on academics, but simply that he questions modern technology's economic impact: "By any reasonable standard, the change in how America lived between 1917 and 1957 was immensely greater than the change between 1957 and the presentI the reality is that we are living through a time when the fundamental things are not changing very rapidly at all," he argues in The Accidental Theorist. He has written that "by 2005 or so it will become clear that the Internet's impact on the economy has been no greater than the fax machine's".

But technological change might just have a sting in the tail for his own profession. Another of Krugman's assaults on conventional wisdom is doubting that a more information-based society will continue to demand more graduates. He notes the paradox that "computers are very good at doing apparently difficult tasks like highly complicated mathematical calculations, but bad at the apparently simple ones like cleaning a house" and surmises that in consequence they are more of a threat to graduate-type jobs.

So what price economists or psycho-historians in the future?

Paul Krugman's website is

COURTING ANTAGONISM TO MAKE HIS É«ºÐÖ±²¥ORIES HIT HOME

Paul Krugman's relish of controversy and gift of expression have not always made him friends among economists.

He admits to using sarcasm as a means of making difficult ideas more understandable, telling a New York Times interviewer: "If I am trying to get across an idea that people find hard to wrap their minds around, one way to do it is to find an influential person who is saying something quite silly because he does not grasp the idea."

Targets have included Robert Reich, Harvard economist and former US Secretary of Labor, described as "a talented writer: too bad he never gets anything right".

Another long-running debate, with MIT colleague Lester Thurow over the reasons for growing economic inequality in the US, has also taken on a personal edge. Thurow, who believes globalisation is the villain, has said "Krugman is too personal. He makes it hard to have a debate." Krugman argues that technological change cutting demand for unskilled workers while creating more graduate-level jobs is the likelier cause.

When Krugman returned to MIT after a spell at Stanford, Thurow asked him to refrain from attacking MIT colleagues.

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